Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Are Financial Centres Worthwhile?

The Times of London reported earlier this month that London was the most successful
financial services industry in the world with record net exports of £19 billion ($33

I was struck by the smallness of this number. If this is what the world’s premier
financial centre can achieve, then is it at all worthwhile for a country
to promote itself as a regional or global financial centre? For example,
does it make any sense for India to build Mumbai up as a regional financial centre?
Perhaps not.

It is reasonable to assume that in a few years time,
India‘s software and BPO exports will be above $33 billion.
On the other hand, any new financial centre will have a fraction of the net
exports of London. Not only will it
be smaller, it will most probably not have institutions like Lloyds of London which
contribute significantly to those net exports (insurance accounted for a third of
London’s net exports). We might be better off importing financial services and
exporting software!

My colleague, Prof. Sebastian Morris, points out however that the advantage
from having a regional financial centre is likely to last for a very very long time.
If London‘s experience is any guide, that is certainly true. If we present
value all that, it might make the whole effort worthwhile. But Prof. Morris also adds
that the real sector of the UK economy may have lost out in the pursuit of
London‘s interest as a financial centre. If we subtract that, where does that
leave us?


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